Economy Hub: What next for the kiwi dollar?

US Vice President Mike Pence at Apec as US-China trade tensions overshadow currency markets. Photo / AO

After spending most of the year on a downward track the kiwi dollar has picked up in the past few weeks as sentiment about the local economy has improved.

But ultimately the kiwi remains very much at the mercy of big political and economic forces shaking the world this year, says Sargon Elias, managing director at New Zealand based Forex and CFD broker GPP Markets.

"The big story is still really the US dollar," Elias said. "So although the kiwi dollar has risen, if you step back and look at the long-term picture it's a US dollar rise."

While rising interest rates in the US having been buoying the greenback for some time, in the last year the trade war with China had been the big driver, Elias said.

There were hopes now that some kind of compromise deal would be reached in the next few months.

That was causing some traders to take long [positive] positions on the kiwi, Elias said.

It was complicated because the Chinese need to be seen to save face, he said.

But with the Chinese economy coming under increasing pressure now it seemed more likely a deal would be done.

"Once a deal is done I think we'll see a rebalancing with the US dollar dropping back to more normal levels and we'll see all the other currencies rise, including the kiwi dollar."

The New Zealand dollar was a heavily traded currency relative to the size of the economy, Elisa said.

It tended to get pushed around a bit by the big global traders.

Now sitting at US68.14c (as at 5pm) the kiwi was pretty fairly valued by historic standards, Elisa said.

It was slightly above the average for the past 20 years at about US66-67c.

"Over the long term New Zealand should do better than other countries, we've got a relatively good economy so I do expect the kiwi dollar will rise."